Sunday, March 24, 2013

Cyprus gets Greeked: is there a lesson for your "real assets?"

We all see what is happening in Cyprus. Governments in the Developed World are behaving more like Third World governments (Cyprus is a Eurozone country, after all). Here in the US, your financial assets are more monitored and regulated than ever before, causing some foreign banks to stop accepting American deposits.

The "rich" world is glued together with promises so detached from reality they're practically psychedelic (appropriate that they were dreamed up by and for baby boomers). This is leading to previously "unthinkable" measures like the one in Cyprus. But these moves aren't new (in '92 Italy had a more modest 0.6% deposit tax), and they certainly aren't a Europe-only phenomenon. In 1933, the US had bank holidays AND the government outlawed the possession of gold, only legalizing it again in the 1970s.

So...

Do you have some extra cash on hand? Smart. Maybe provisions for a week or two in case stores and banks were closed due to some natural or man-made disaster? Smart. Do you maybe possess a few silver coins in case of real trouble? Not a bad move at all.

I mentioned cash, which may annoy some myopic survivalists. "The dollar bill is just paper!!!"

Correct, but I guarantee you any Cypriot who had a cash stash at home before this crisis is faring much better than one who didn't. People do not revert to trading seashells overnight.

While we're on the subject of paper, we should take time to think the next thought. You know what else is just paper? Contracts. Contracts, like dollar bills, are just promises. Cypriots had contracts with their banks. But when quaking duress arrived...bye bye (αντίο!) contract. Remember that this also applies to real assets. Real assets--apart from precious metal coins in your physical possession--are also just backed by paper. A receipt for gold stashed abroad is just a piece of paper. And having a contract for a patch of land in Costa Rica doesn't mean much if you aren't there to protect it (an important lesson for those with "safe zones" established abroad). Squatters are not known for their fear of fine print. Remember, part of the reason that escape ranch you bought in Latin America was so cheap was because assets in countries with less overall stability tend to sell at a discount due to the risk involved in investing there. You remember that free market and its price signals? Stop merely using them as a slogan and start giving them some actual thought.

Politicians interested in nationalization--which of course just means personal gain and aggrandizement for the nationalizing politician and his cronies--also don't worry much about the concerns of survivalists (there is a reason Chavez died a billionaire despite not inventing anything for Apple). Never forget that with just a bit of force, a contract can be nullified (along with the person attempting to enforce it).

Just to drive the point home: you know what else is just paper? The Constitution. Waving it around scares no one. Unless you are able to fold it into the world's deadliest origami sword, it isn't going to help you much.



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